Hostname: page-component-78c5997874-94fs2 Total loading time: 0 Render date: 2024-11-05T19:49:55.724Z Has data issue: false hasContentIssue false
  • English
  • Français

Are financial retirement incentives more effective if pension knowledge is high?

Published online by Cambridge University Press:  14 December 2017

MATTHIAS GIESECKE  and
GUANZHONG YANG
MATTHIAS GIESECKE
Affiliation:
RWI – Leibniz-Institute for Economic Research, Essen, Germany (e-mail: [email protected])
GUANZHONG YANG
Affiliation:
University of Duisburg-Essen, Essen, Germany
Get access Rights & Permissions [Opens in a new window]

Abstract

We study the combined effects of financial incentives and information provision on retirement behavior. To elicit preferences for retirement timing in the laboratory, we ask subjects to make retirement choices under different payoff schemes that introduce variation in financial incentives. Testing ceteris paribus conditions of the financial incentive alone shows a considerable delay of retirement once early retirement becomes financially less attractive. However, varying available information as another treatment parameter reveals considerable heterogeneity in the functioning of these incentives. Subjects who are explicitly informed about the expected pension wealth respond more strongly to financial incentives compared with those who only know their pension annuity. Being informed about a forward-looking measure of pension benefits makes the financial consequences of retirement choices more salient to the decision maker.

Keywords

C91H55J26Retirement agefinancial incentivesinformation treatmentpension knowledgefinancial literacy
Type
Article
Information
Journal of Pension Economics & Finance , Volume 17 , Special Issue 3: Advances in Understanding Pension Decisions , July 2018 , pp. 278 - 315
Copyright
Copyright © Cambridge University Press 2017 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

We are grateful to Jeannette Brosig-Koch, Colin Green, Timo Heinrich, Christoph Helbach, Reinhold Schnabel, and numerous seminar participants for helpful discussions and suggestions. The editor Michael Haliassos and the referees provided valuable comments that helped to improve the paper. Special thanks to Thomas Bauer and Wim Kösters for supporting the recruitment of older workers. Fernanda Martinez Flores and Anja Rösner provided excellent research assistance. Financial support from the German Research Foundation (DFG) is gratefully acknowledged (SCHN553/1-1).

References

Ameriks, J., Caplin, A., and Leahy, J. (2003) Wealth accumulation and the propensity to plan. The Quarterly Journal of Economics, 118(3): 1007–1047.CrossRefGoogle Scholar
Asch, B., Haider, S. J., and Zissimopoulos, J. (2005) Financial incentives and retirement: Evidence from federal civil service workers. Journal of Public Economics, 89(2–3): 427–440.CrossRefGoogle Scholar
Baker, M., Gruber, J., and Milligan, K. (2003) The retirement incentive effects of Canada's income security programs. Canadian Journal of Economics, 36(2): 261–290.Google Scholar
Blundell, R., Meghir, C., and Smith, S. (2002) Pension incentives and the pattern of early retirement. The Economic Journal, 112(478): C153–C170.Google Scholar
Börsch-Supan, A. and Schnabel, R. (1999) Social security and retirement in Germany. In Gruber, J. and Wise, D.A. (eds), Social Security and Retirement Around the World, Chapter in NBER Book Series International Social Security. University of Chicago Press, pp. 135–180.Google Scholar
Brown, J. R., Kapteyn, A., Luttmer, E. F., and Mitchell, O. S. (2017) Cognitive constraints on valuing annuities. Journal of the European Economic Association, 15(2): 429–462.CrossRefGoogle Scholar
Bucher-Koenen, T. and Lusardi, A. (2011) Financial literacy and retirement planning in Germany. Journal of Pension Economics and Finance, 10: 565–584.Google Scholar
Burtless, G. (1986) Social security, unanticipated benefit increases, and the timing of retirement. The Review of Economic Studies, 53(5): 781–805.Google Scholar
Chan, S. and Stevens, A. H. (2008) What you don't know can't help you: Pension knowledge and retirement decision-making. The Review of Economics and Statistics, 90(2): 253–266.Google Scholar
Coile, C., Diamond, P., Gruber, J., and Jousten, A. (2002) Delays in claiming social security benefits. Journal of Public Economics, 84(3): 357–385.CrossRefGoogle Scholar
Dillenberger, D. (2010) Preferences for one-shot resolution of uncertainty and Allais-type behavior. Econometrica, 78(6): 1973–2004.Google Scholar
Dohmen, T., Falk, A., Huffman, D., Sunde, U., Schupp, J., and Wagner, G. G. (2011) Individual risk attitudes: Measurement, determinants, and behavioral consequences. Journal of the European Economic Association, 9(3): 522–550.CrossRefGoogle Scholar
Dörrenberg, P., Dolls, M., Peichl, A., and Stichnoth, H. (2016) Do savings increase in response to salient information about retirement and expected pensions? Contribution to the Trans-Atlantic Public Economics Seminar (TAPES) 2016, unpublished manuscript.Google Scholar
Fatas, E., Lacomba, J. A., and Lagos, F. (2007) An experimental test on retirement decisions. Economic Inquiry, 45(3): 602–614.Google Scholar
Federal Statistical Office (2012) Sterbetafeln 2000/2002. Technical report, Wiesbaden: Statistisches Bundesamt.Google Scholar
Fischbacher, U. (2007) z-Tree: Zurich toolbox for ready-made economic experiments. Experimental Economics, 10: 171–178.Google Scholar
German Federal Pension Insurance (2014) Rentenversicherung in Zeitreihen, Statistik der Deutschen Rentenversicherung, DRV-Schriften Band 22, Deutsche Rentenversicherung Bund.Google Scholar
German Federal Pension Insurance (2015) Rentenversicherung in Zeitreihen, Statistik der Deutschen Rentenversicherung, DRV-Schriften Band 22, Deutsche Rentenversicherung Bund.Google Scholar
Giesecke, M. (2017) The effect of benefit reductions on the retirement age: The heterogeneous response of manual and non-manual workers. Review of Income and Wealth (forthcoming).Google Scholar
Gneezy, U. and Potters, J. (1997) An experiment on risk taking and evaluation periods. The Quarterly Journal of Economics, 112(2): 631–645.Google Scholar
Greiner, B. (2004) An online recruitment system for economic experiments. In Kremer, K. and Macho, V. (eds), Forschung und Wissenschaftliches Rechnen 2003. GWDG Bericht 63, pp. 79–93.Google Scholar
Haigh, M. S. and List, J. A. (2005) Do professional traders exhibit myopic loss aversion? An experimental analysis. The Journal of Finance, 60(1): 523–534.Google Scholar
Hanel, B. (2010) Financial incentives to postpone retirement and further effects on employment: Evidence from a natural experiment. Labour Economics, 17(3): 474–486.Google Scholar
Hanel, B. and Riphahn, R. T. (2012) The timing of retirement: New evidence from Swiss female workers. Labour Economics, 19(5): 718–728.Google Scholar
Holt, C. A. and Laury, S. K. (2002) Risk aversion and incentive effects. American Economic Review, 92(5): 1644–1655.Google Scholar
Krueger, A. B. and Meyer, B. D. (2002) Labor supply effects of social insurance. In Volume 4 of Handbook of Public Economics. Elsevier, pp. 2327–2392.Google Scholar
Larsson, L., Sundén, A., and Settergren, O. (2009) Pension information: The annual statement at a glance. OECD Journal: General Papers, 2008(3): 131–171.Google Scholar
Liebman, J. B. and Luttmer, E. F. P. (2015) Would people behave differently if they better understood social security? Evidence from a field experiment. American Economic Journal: Economic Policy, 7(1): 275–299.Google Scholar
Lumsdaine, R. L., Stock, J. H., and Wise, D. A. (1996) Why are retirement rates so high at age 65? In Wise, D.A. (ed.), Advances in the Economics of Aging. University of Chicago Press, pp. 61–82.Google Scholar
Lusardi, A. and Mitchell, O. S. (2007) Baby boomer retirement security: The roles of planning, financial literacy, and housing wealth. Journal of Monetary Economics, 54(1): 205–224.CrossRefGoogle Scholar
Lusardi, A. and Mitchell, O. S. (2014) The economic importance of financial literacy: Theory and evidence. Journal of Economic Literature, 52(1): 5–44.CrossRefGoogle ScholarPubMed
Manoli, D. and Weber, A. (2016) Nonparametric evidence on the effects of financial incentives on retirement decisions. American Economic Journal: Economic Policy, 8(4): 160–182.Google Scholar
Mastrobuoni, G. (2009) Labor supply effects of the recent social security benefit cuts: Empirical estimates using cohort discontinuities. Journal of Public Economics, 93(11–12): 1224–1233.Google Scholar
Mastrobuoni, G. (2011) The role of information for retirement behavior: Evidence based on the stepwise introduction of the social security statement. Journal of Public Economics, 95(7–8): 913–925.Google Scholar
Mitchell, O. S. and Fields, G. S. (1984) The economics of retirement behavior. Journal of Labor Economics, 2(1): 84–105.Google Scholar
OECD (2015) Pensions at a Glance 2015: OECD and G20 Indicators. Technical report, Paris: OECD Publishing.Google Scholar
Schreiber, P. and Weber, M. (2016) Time inconsistent preferences and the annuitization decision. Journal of Economic Behavior & Organization, 129: 37–55.Google Scholar
Stock, J. H. and Wise, D. A. (1990) Pensions, the option value of work, and retirement. Econometrica, 58(5): 1151–1180.Google Scholar
van Dijk, F., Sonnemans, J., and van Winden, F. (2001) Incentive systems in a real effort experiment. European Economic Review, 45(2): 187–214.Google Scholar
van Rooij, M. C., Lusardi, A., and Alessie, R. J. (2012) Financial literacy, retirement planning and household wealth. The Economic Journal, 122(560): 449–478.Google Scholar
Supplementary material: PDF

Giesecke and Yang supplementary material

Giesecke and Yang supplementary material 1

Download Giesecke and Yang supplementary material(PDF)
PDF 2 MB